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Concho CEO attempts to calm investor fears after poor Q2

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Concho CEO attempts to calm investor fears after poor Q2

In an effort to calm shareholder concerns over his company's approach, Concho Resources Inc. CEO Timothy Leach used his appearance at Barclays CEO Energy-Power Conference in New York to explain what went wrong in the second quarter.

Concho's shares dropped by more than $22 and lost nearly a quarter of its value Aug. 1 when the company said it had blundered by drilling wells too closely together in the Delaware Basin's Wolfcamp Shale. With the addition of cost overruns, Concho announced that it would cut back on production and reduce its oil growth projections to stay within budgetary constraints.

"I'm used to delivering more than we have told you, and in the second quarter, we did not do that," Leach said Sept. 4. "And today, I'm going to try to explain what happened."

Leach admitted the confidence investors have in Concho has "wavered" since Aug. 1, but the company is taking the right steps for both the present and the future. He also said 2019 was a "transitional year" after the acquisition of RSP Permian last year significantly expanded the company's size. Leach chalked up at least part of the problems experienced in the second quarter to growing pains, as Concho takes on projects of a much larger scope.

"One of the factors — higher well cost — is due in part to inefficiencies we discovered on drilling and facilities as we move to these very large projects," he said. "We still expect to land our spending within the $2.8 billion to $3 billion range, and we expect a decline in cost for the rest of the year."

During his discussion of the disappointing Wolfcamp results, Leach said the company had already learned its lesson and shifted gears away from drilling wells in such close proximity.

"We have since given priority to projects with fewer wells and wider spacing and emphasized returns," he said. "These efforts are already in motion … there will be less wells per reservoir in the second half of '19, and those wells will be spaced further apart than in the first half of '19."

Even after seeing his company's stock take a prolonged beating, Leach insisted Concho remains on solid footing and is worthy of investor support.

"The fundamentals of our business are as strong as I can recall, and despite the weakness over the last two months, we're well positioned to plan around conservative commodity prices, deliver sustainable oil growth, generate strong free cash flow and invest for the long term," he said. "We feel urgency in demonstrating the unique characteristics of our business: growth and return to shareholders. While our portfolio is as strong as ever, 2020 should be a breakout year."